Strategic Management on Starwood Group of Hotels - Assignment Example

Strategic Management ON Starwood Group of Hotels Critically appraise the current competitive environment of Starwood (your own organisation) Starwood Group of hotels was incorporated in 1980, and two of their largest brands Sheraton hotels and resort and Westin Hotel and resorts have been serving the market for over 60 years (Starwood, 2008). Starwood group of hotels and resorts stand 8th as per the worldwide hotel ranking 2007 on the basis of rooms (See Table 1). Worldwide Hotel Ranking 2007- Top 10 Groups (in rooms) Rank 07 Rank 06 Group Country Hotels Rooms Change 2007 2006 2007 2006 Rooms % 1 1 Intercontinental HG GB 3,741 3,606 556,246 537,533 18,713 3.50% 2 2 Wyndham Worldwide USA 6,473 6,348 543,237 532,669 10,568 2.00% 3 3 Marriott INT. USA 2,775 2,672 502,089 485,979 16,110 3.30% 4 5 Hilton Corp. USA 2,901 2,744 497,738 472,510 25,228 5.30% 5 4 Accor FRA 4,121 4,065 486,512 475,433 11,079 2.30% 6 6 Choice USA 5,316 5,145 429,401 418,488 10,913 2.60% 7 7 Best Western USA 4,164 4,195 315,401 315,875 -474 -0.20% 8 8 Starwood Hot. &Res. USA 871 845 265,598 257,889 7,709 3.00% 9 9 Carlson Hospitality USA 945 932 145,933 146,785 -852 -0.60% 10 10 Global Hyatt USA 733 738 141,011 144,671 -3,660 -2.50% Table 1: Worldwide Hotel Ranking – 2007 Top 10 Groups (in rooms) (Hotel-Online, 2007) Starwood being one amongst the top 10 companies has to face a lot of competition. Competition for hotels and resorts is based more on the number of rooms, size of properties, restaurants, operations, marketing and other facilities provided. Starwood has a large number of hotels worldwide naming a few: St. Regis, The Luxury Collection, Westin, Sheraton, Le Meridien, Aloft, Four Points, W and Element. As of 31st December 2007, Starwood group’s portfolio included a total of 897 Hotels with 275,000 rooms across 100 countries that primarily cater to the upscale markets of the lodging industry. Starwood has a total of nine brands namely: Sheraton, Four Points by Sheraton, W hotels, Aloft hotels, The Luxury collection, Le Meridien, Element, Westin Hotels and Resorts, St. Regis Hotels and resorts (Data Monitor, 2007). With the vast brand portfolio Starwood has to make a lot of efforts to ensure that all the brands are given equal importance and marketing (Starwood, 2008). Starwood faces a lot of competition from various hotels both nationally as well as internationally. Few of the main competitors are Hilton Group, Marriott, Accor etc. The table (Table 2) below indicates a few figures for the above-mentioned companies. The table allows us to compare the revenue, employee, net incomes, profit margins of these companies. Basis of Comparison Starwood Hilton 2003 2005 2007 2003 2005 2007 Revenues 4,630.0 5,977.0 6,153.0 3,819.0 4,437.0 8,090.0 Net Income 309.0 422.0 542.0 164.0 460.0 121.0 Profit Margins 6.70% 7.10% 8.80% 4.30% 10.40% 1.50% Total Assets 11,894.0 12,494.0 9,622.0 8,183.0 8,743.0 37,868.0 Total Liabilities 7,509.0 7,258.0 7,520.0 5,944.0 5,932.0 32,670.0 Employees 110,000 145,000 155,000 70,000 61,000 121,474 Basis of comparision Accor Mariott 2003 2005 2007 2003 2005 2007 Revenues 9,746.6 9,764.4 11,112.2 9,014.0 11,550.0 12,990.0 Net Income 416.0 498.1 1,247.9 502.0 669.0 696.0 Profit Margins 4.30% 5.10% 11.20% 5.60% 5.80% 5.40% Total Assets 14,991.4 18,031.8 14,824.4 8,177.0 8,530.0 942.0 Total Liabilities 9,951.8 12,146.6 9,774.0 4,339.0 5,278.0 513.0 Employees - - - 128,000 143,000 151,000 Table 2: Comparison of a few top hotels (Global Hotels, 2008) Starwood group of hotels has definitely made a mark of its own in the hotel industry worldwide. There are a few areas the company can improve and increase its ranking. The company has concentrated on improving its presence worldwide and has been successful. The main assets of a hotel are the properties owned by it. Starwood has ensured to get very distinct properties and has built the hotels in locations that are very sophisticated and well placed for the most sophisticated travelers. They provide impeccable service with high style and high quality (Starwood, 2008). Starwood has shown great returns on investments over the years and has been over market average in 2006 (Datamonitor, 2007). Good returns reflect assets being utilized in profitable avenues (Gillespie et al, 1997). With the increased stability in the working of the group and having a better stand in the markets the company has moved to become one which has a high growth rate along with a high market share. The groups earn revenues which they can utilise to bring in better services for the customers. Starwood’s mission as it reads, “A Global Branded Life Style Hospitality company that delivers branded consumer products and services in a way that are different, better and special” (Starwood, 20080. Also the company has kept up to it values and still works by them. The company’s strategy to excel in all that they take up is one of the major reasons for the company to be able to move through the grid of the BCG Matrix. Starwood groups in a state where the company is going to remain in a growth mode for a very long time, until it moves into the cash cow grid. Figure: Starwood’s Lifecycle Position The current market share of the companies can be seen in the graph below. Market Share of various competitors The current competitive advantages that the company has in comparison to the above mentioned companies are mainly customer loyalty and technological know how. Starwood has gained a lot of trust and support from the customers. There is also a low switching cost among the buyers and the threat to substitute products is mainly where the other properties where the customers can stay and also the extended stay in hotels and teleconferencing. The other huge positive that the company has is the technical know how (Brown, et.al., 2008). The company has included a number of new technologies like the administered new mobile guest check in solution where there is a use of a wireless mobile computing application. Also Starwood Hotels has always and will continue to improve the technology and work within the entire industry (CRM Today, 2008). This is majorly because the company works with the value to provide their customers with excellence always. Outline the challenges Starwood faces in the light of this analysis There have been a number of challenges that have been face by Starwood Group of Hotels. Then group has a number of challenges that need to be faced and this is mainly because of the competitors. Starwood has recorded low revenues when compared to its closest competitor Hilton. In 2006 Hilton’s revenue reached up to $8162 million, which was an increase of 84% over 2005 figures (Hilton, 2008). Also Host hotels and resorts, another close competitor of the company recorded a growth of 29.8% in revenue when compared to 2005, whereas Starwood recorded in 2006 - $5979 million which was an increase by just $2million as compared to 2005 (Host, 2008). The Starwood group’s employees have also shown very low productivity and the revenue earned per employee is below the average of the market. Starwood’s prices are costlier compared to its competitors operating in the same sector. The expectations from the customer are high, in terms of quality, when they pay such high prices (Fisk et al, 2000). However a few reviews from customers just show that they lack in customer service in a few areas (Starwood-Lobby, 2008). Hence all these areas have to be addressed. Also the number and variety of holiday packages available are lesser comparatively. The marketing strategy is not very focused on the target segments. The high levels of sophistication and amazingly beautiful locations definitely add value, however not the best in service on a few aspects causes a drawback for the group. Starwood has concentrated its business in the US and thus depends on the US market to a high extent. However, competitors like Hilton and other companies have utilized the international markets effectively and so are not completely dependent on the US markets. Over 50% of the company’s inventories are based in the US market, making it more prone to risks (Starwood, 2008). Hilton receives about 39.6% of its revenues from international markets and as for Intercontinental, 54.9% is derived from the international markets. Even though Starwood group has tried to encourage all the brands, there have been instances where the hotels are known yet the Starwood name is not known i.e. customers are aware of the different hotels however cannot relate to the group as a whole. This is one of the biggest issues the group faces in relation to the branding. Even though the group has a strong market position which is supported by the vast network of hotels and properties, it is to be noted that in a lot of instances the customers of the hotels in most cases are not aware of the different hotels that fall under the same umbrella of the Starwood group. Thus from the above discussion it is clear that Starwood is facing a very difficult time correctly branding and positioning the brand to the customers because of the various aspect of differentiating. The group has found it difficult to differentiate itself in its websites, online services, common supplementary service, public relations, sponsorship and co-branding and direct market campaigns. Also the group has not set its target market right which has created confusion and issues with the brand image of the group (Cutler, 1999). The major challenge of the company can however be based as the lack of strong branding. With the current position that the groups is in, it is essential that the issue of branding is looked into at the earliest. With the .amount of competition that the company faces at present, it is important that ever possible step is taken by the company to ensure that the brand awareness is improved. The hotel industry is one with intense and the current competitive advantages that the company has in comparison to the above mentioned companies are mainly customer loyalty and technological know how. Starwood has gained a lot of trust and support from the customers. There is also a low switching cost among the buyers and the threat to substitute products is mainly where the other properties where the customers can stay and also the extended stay in hotels and teleconferencing. The other huge positive that the company has is the technical know how (Brown, et.al., 2008). It is also important to understand that in the current economic crisis, all travellers look for staying at hotels which are cheaper. This is one of the biggest chances for the company to build its brand and also to position itself in the markets. This will lead to higher brand awareness which in turn will lead to higher customer loyalty and higher revenue. Develop suitable/relevant strategic options which will assist the organisation in meeting these challenges It is clear that the level of competition in the hotel and lodging sector is very high. Hence it is very essential that Starwood has to undertake immediate efforts to improve its services and market share in order to survive in this competitive environment. This consultancy report will analyze the company’s current situation and aim at improving the organization on the whole. The first recommendation for the company would be in regards to its website. With the increased trend of online reservations before travel and the increased number of online intermediaries for booking, the company is lagging behind in its presence on these sites (Benyon-Davies, 2004). If the company increases its investment on the website and marketing sector, it would be able to gain higher number of customers. Even though the website does cater to the basic booking process, it can be improved in a lot of ways. The company can improve its website to much higher standards by including a lot of features like customer reviews, online guest book, interactive forums, etc. E-Commerce is now a very essential part of any business. They can improve their website by including affiliate marketing, link building and proper content optimization of the website to increase its standing on the search engines (Brown, 2000). Also, the company could increase corporate service and thereby increase its revenues (Jobber, 2004). They could provide the hotel premises for a variety of corporate activities like assessments, official outings, conferences, seminars, etc. This would not only help them increase the revenue but would also help them increase their brand name and would help them gain more number of customers. As mentioned earlier Starwood bases a lot of its business within the US. This not only would increase the business risks but would also leave a lot of profitable areas uncovered. Starwood should aim at moving into different markets. This would reduce the risks of any loss in case of any recessions in the US markets. Finally a very essential part of any business – Marketing; Starwood can increase its brand name by properly marketing all of its brands (Evans and Moutinho, 1999). This would include online as well. They could improve their online presence by registering with the online hotel comparison sites, the intermediaries, etc (Deighton, 1996). The whole brand requires to be well marketed so that it can become the first choice of customers (Jobber, 2004). The company can increase its brand name and brand equity by increasing the non tangible assets and goodwill of the company. Every successful company has earned a high brand name and goodwill and thus pushes them to higher levels (Sloman and Sutcliffe, 2004). Branding plays a very important role in the marketing of a company. Strong brands are normally both products category leaders and is very important for both the company as well as the customers. Companies benefit from the strong brand name as customers would increase the customer perception towards the brand and act as a barrier to competition. The customers on the other hand gain from the branding since it acts as a form of quality certification which helps ensure trust. It is important to firstly understand the importance of branding to Starwood. The company value will increase with better branding and will make the company more famous among the customers of the various hotels, by ensuring the consumer perception is that of a strong brand image for Starwood (Fuchs, 2005). This would help the company create a barrier to competition and thus lead the company towards higher revenues and profits. Also branding can be used as a base to expand brand into different fields say like travel and tourism. A company that has a strong brand image is certified automatically for its quality, since brand image cannot be increased without good quality. Lat but not the least the brand will help the group gain the trust of the customers and will hence increase customer loyalty (Hammond, 2008). The group has concentrated on ensuring that all the brands are well marketed to ensure the customers are aware of the brands of the group. The importance of branding however has not been understood well by a few companies. Branding ensures that the customers are able to relate to a particular product or service provided. The expectations from the customer are high, in terms of quality, when they pay such high prices (Fisk et al, 2000). A lot of offers can be given to customers in the form of gift vouchers in magazines, discount vouchers in newspapers. This would enable the company to improve the brand awareness and it would allow the people to relate to the company. It is very important to have a brand that is well known and well marketed (Ferguson and Hlavinka, 2006). Take for instance the Starwood hotels the group has around 9 different brands. Starwood has created a brand name for itself worldwide and has been able to gain a high number of loyal customers. The group has provided good service to customers and has received a number of positive feedbacks from the customers. The popularity of the group is seen clearly by its ranking in the Worldwide Top 10 hotels. The company has created a brand image of the various hotels to be business travelers’ hotel and mostly all business travelers book even the one day trips made. Starwood has not been able to position its brand well in the market and the image of the brand is a little mixed since the brands are extensive and cater to almost the same type of customers (Clifton, et. al., 2004). Conclusion: Starwood hotels have proved to be a very well organised and well planned group of hotels. The organisational structure of the company is very clearly one which is hierarchical and functional. In a hierarchical structure the employees are ranked at different levels within the organisation and each of levels are above the others. Here one of the employees will have a number of workers working directly under them and this is mainly in their span of control. The hierarchical structure of Starwood groups is one which is relatively a flatter structure and thus has only a few levels. This is seen in the performance of the company as has been discussed. However as discussed the company requires a lot of efforts to improve its branding and this will provide the company with the benefits that it currently lacks compared to its competitors. Hence if the company is able to follow a few of the recommendations or even move in the same direction as that provided, the company will be faced with a number of benefits. This will be both in terms of the revenues as well as the number of customers. The recommendations that have been drawn out in the previous section are based on a through study of the hotel industry and the group itself. Though Starwood has a strong market hold currently, it could improve its market by making a few changes like discussed and this could also lead to the company becoming the number one in the industry. 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